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Forex outlook:
The dollar weakened across the board on Monday after failing to extend gains seen after last week's strong jobs data, while the euro and other currencies linked to rising interest rates strengthened. The dollar is trades around the levels of 1.3490 against the Euro, around the levels of 121.80 against the Yen and around the levels of 1.9910 against the sterling.
The Euro hit a record high against the low-yielding yen and sterling while the high-yield Australian and New Zealand dollars also hit fresh multi-month peaks.
A tumble of more than 8 percent in China's benchmark equity index only provided a brief respite for the yen, unlike in February, when a sell-off in the Shanghai bourse boosted the Japanese currency and sparked slides in global stock markets. Instead, "interest rate differentials and high-yield currencies versus low-yielder’s remain the broad themes for foreign exchange trading," said Nick Bennenbroek, head currency strategist at Wells Fargo Bank in New York. “The dollar failed to sustain gains from last week based on the assessment we are still very far from a situation of rate hikes in the U.S.,while rates are still going up elsewhere."
The European Central Bank meets on Wednesday and is expected to raise its benchmark rate 25 basis points to 4.00 percent and possibly signal further increases.
In addition to the ECB, central banks in Britain, Australia and New Zealand will also make rate announcements this week. All three are expected to maintain the status quo, but analysts see an outside chance of hikes from the Reserve Bank of New Zealand and the Bank of England. “Risk appetite remains fairly strong, supporting carry trades. The ECB meeting this week should indicate that the ECB has a lot more to do (on rate increases) while the economy in Japan is sluggish," said Niels from, currency strategist at Dresdner Kleinwort.
But some analysts said that after raising rates this week, the ECB may be inclined to pause for a while to access the impact of its tighter monetary policy on the economy. That could leave the dollar poised for a corrective rally. “I wouldn't be surprised to see more neutral ECB language this week, and if U.S. data continues to hold up, we could see the euro fall to the $1.30-$1.31 area over the coming weeks," said Shaun Osborne, senior currency strategist at TD Securities in Toronto.
Gold: U.S. gold turned higher after the start on Monday, reaching highs dating back to May 16 as the dollar slipped, but traders noted gold volume was light. They said the dollar lent support to gold as short-term speculators bought the metal, using the lower currency as an excuse to make quick small profits. “There's really very little going on. It's very very quiet today. I haven't seen anything special going on one way or the other. It's mostly just been dancing around unchanged," a precious metals broker said. Gold future contract is trades around the levels of 676.50$.
Crude Oil: U.S. crude oil futures ended open-outcry trading up $1.17 on Monday, lifted by strong London futures that were boosted by concerns about a cyclone in the
Indian Ocean and continuing turmoil in Nigeria and amid sharply higher heating oil futures. Crude Oil future contract is trades around the levels of 66.15$ per barrel.
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